Financial Services and Markets Bill

Viscount Trenchard Excerpts

2nd reading
Tuesday 10th January 2023 Lords Chamber

[Viscount Trenchard (Con)]

My Lords, it is a pleasure to follow my noble friend Lord Northbrook. I thank my noble friend Lady Penn for her impressive introduction of this Bill and declare my interest as set out in the register as a director of two investment companies. I welcome the Bill. I wish to place on record my strong objection to the imposition of a five-minute so-called advisory speaking time at Second Reading. I add my congratulations to my noble friends Lord Remnant, Lord Ashcombe and Lady Lawlor on their excellent maiden speeches.

I was a member of the Joint Committee on Financial Services and Markets, which reported in 1999 on the need for the Financial Services and Markets Act 2000. At the time, we did not appreciate how much of the responsibility for framing financial services regulation would be transferred to the European Commission, as Union competence steadily increased its reach. We were powerless to prevent the entry into force of AIFMD in 2013. We did not resist the adoption and eventual entry into force in 2018 of MiFID II, which requires fund managers and brokers to set separate charges for trade execution and research, and fund managers to pay for research themselves or agree a separate research contract under which they may recover their costs. These and other legacy EU regulations, such as PRIIPs and its requirement that companies produce consumer-friendly kids, have had the opposite effect on consumers from that which was expected.

A return to the FSMA 2000 model, balancing responsibilities between Parliament, government acting through the Treasury and the regulators, makes a great deal of sense. I was never sure that the decision following the financial crisis of 2008 to create the PRA as a second regulator, which was neither an independent regulator nor fully a department of the Bank of England, was the right one. The creation of the FCA, with its one strategic objective, that markets function well, and three operational objectives, which include a competition objective but one limited to promoting competition in the interest of consumers, has contributed to the emergence of a culture within the institution which is overcautious and generally perceived by the industry as anti-innovation. Participants in London’s insurance markets have explained to me that this is the principal reason why our share of the global insurance markets is stagnant at around 7%, whereas those of other jurisdictions such as Bermuda and Singapore are growing.

From the point of view of your Lordships’ House, Clause 36 of the Bill, governing engagement with parliamentary committees, is very unsatisfactory. It is very far from even-handed between your Lordships’ House and another place. I question whether the Treasury Committee, as it currently operates, can conduct the required level of oversight. Surely a Joint Committee of both Houses should be established for this purpose. We need a committee resourced well enough to replicate the activities of the ECON committee of the European Parliament.

I welcome the Government’s decision to act in accordance with a recommendation of the Listing Review, undertaken by my noble friend Lord Hill of Oareford, to create a competitiveness and growth objective. Clause 24(2) makes clear that this objective is secondary. However, as I mentioned, the FCA has one strategic objective and three operational objectives. Could my noble friend the Minister please inform the House whether the new competitiveness and growth objective is to be a secondary strategic objective or a secondary operational objective? Could she explain why the Government does not recognise that, if the FCA’s new objective is only secondary, it will not be effective in changing the FCA’s culture and behaviour to the extent necessary to achieve the Government’s ambition for the UK to be the world’s most innovative and competitive global financial centre?

The regulators are required to report on how well they are performing their new objectives, but Clause 26 suggests that the FCA sets its own homework and then marks it. Unlike the PRA, it is not required to undertake public consultation. Could my noble friend the Minister tell the House whether she thinks that the empowerment of the FCA to regulate Stock Exchange listings through the designated activities regime will make admissions more, or less, expensive and cumbersome than they have become over the past 14 years—during which, as my noble friend Lord Hill pointed out, the number of companies listed on the London Stock Exchange has declined by 40%?

I welcome the Bill and look forward to working with other noble Lords to make it a better one.